Redefining last-minute shopping on the web

How late can you delay Christmas shopping? If you are content to shop in physical stores, you can push things right to the bitter end. There is nothing but self-esteem keeping you from stopping at the Wal-Mart on the way to midnight mass.

Of course, if you like the selection and convenience of shopping on-line, things are a little tougher. Delivery takes time. Sure you can order a present right up till Christmas eve but there is no way it will be there for Christmas morning. On-line retailers, consequently, need to announce deadlines before which they can commit to getting you the goods before the big day.

If you stop for a moment, you will realize that this implies two things. First, whatever cutoff is announced is going to affect the demand the retailer sees. In particular, this is going to cause a spike in the last hour or so as procrastinators rush to get their shopping done. Second, hours are going to count, so if one retailer can stretch out the window for ordering — even a little bit — it will have a competitive advantage.

These observations are the central point in a Wall Street Journal article about GSI Commerce (Web Retailers Scrap for Last-Hour Sales, Dec 19). GSI is a division of eBay that provides fulfillment services for the likes of Aéropostale and Estée Lauder. They have set out to squeeze as much time as possible out of their operations so customers can order as late as possible. This year they are letting customers order as late as 11:00 PM Eastern time on December 22nd. It’s not exactly Christmas eve ordering, but it is eight hours later than Amazon.

So how have they done this?

Basically, with a lot of nitty-gritty attention to detail.

GSI generally organizes its warehouses by retailer, with companies like Aéropostale and Nautica taking up large sections of shelf space. But during peak times like holidays, a different logic rules. After experimenting with the idea last year, GSI now loads hot sellers into boxes the size of big closets and stacks them two high near the ends of the aisles.

The idea is to put the most popular goods closest to the people who pick them out for processing, saving them trips into the depths of the warehouse. The system cuts employees’ walking time by 60%, said Ron Livengood, senior director of operations at the Walton site.

This year, the company is using all 7,000 of the big boxes for Aéropostale alone, each one holding a specific size and color of a garment, Mr. Livengood said. To figure out what to put in the boxes, GSI’s data scientists track order patterns and work with retailers to know what is being promoted heavily, like pink Aéropostale hoodies or slipper boots. Those calculations are rerun every hour.

Other changes have ranged from altering storage boxes used so they can be stacked closer together and printing labels differently so ink cartridges need to be replaced less often.

These last two changes just generally make sense and presumably are used year round. The real question is why not treat hot sellers differently all the time as opposed to just at Christmas. I suspect that a couple of things are in play. First, since they are serving multiple retailer out of one facility, putting fast movers at the end of aisles might then complicate in-bound logistics. That is, it is easier to process material coming in for Aéropostale (as well as keep track of it all), if all of Aéropostale’s stuff is together. That says there is a tradeoff between in-bound and out-bound efficiency. For most of the year, the out-bound rate may not be overwhelming so it is best to keep everything together. Once you hit the holidays, that calculation changes. All of the action is on the out-bound side so saving effort there is paramount.

A second issue is people. GSI triples in staffing during the holiday. All those newbies can’t be as efficient as GSI’s regular employees. Simplifying the tasks and minimizing the number of trips new workers have to make into the bowels of the fulfillment center limits the impact of their inexperience.